10/08/2009 @ 6:00PM

Health Record Gold Rush

When we reached Glen Tullman last Friday to ask how his electronic medical records company is doing nine months after a $19 billion government stimulus to the industry, he was inexplicably downbeat. It turned out that his hometown of Chicago had just lost its Olympic bid, one he’d helped organize.

It was a rare setback in a mostly sweet year for Tullman.
Allscripts
is one of the two biggest suppliers of electronic health records to doctors’ practices. Based in Chicago, the company’s bookings of new business are up 47% from a year ago. Revenues are projected to be $700 million for the year, up from $550 million last year. In the most recent earnings announcement last week, the company reported $165 million in quarterly revenue, up from $92 million for the same period last year. Profits rose from $5 million to $13 million. Since the beginning of the year, the stock has doubled to $20 a share, giving Allscripts a market value of $2.9 billion.

“We are watching what will be the fastest transformation of a major U.S. industry in history,” says Tullman, who predicts that next year he will double the number of doctors to 120,000 who use his electronic health records software. “ATMs took 10 years. That’s the normal cycle. This will be three years.”

Medicine, maybe the last bastion of mountainous paper files, has been put on notice by the White House that it’s time to change. Starting during campaign stops, Barack Obama talked about the transformative power of electronic record keeping. Doctors and hospitals recognize the advantages of digitizing patient information. But they lacked financial incentives to invest a lot of capital in computers and software, since they don’t get paid more by health plans or Medicare for having high-tech offices.

That changed in February when the president signed the $787 billion stimulus bill, which included $19 billion in funding for electronic health records. Obama called it the “long overdue step of computerizing America’s medical records, to reduce the duplication and waste that costs billions of health care dollars and the medical errors that every year cost thousands of lives.”

The money will go only to doctors who have thrown out their paper charts and are using computer records systems by 2011. The cash payments total $44,000 per doctor over five years, plus $25,000 more in subsidies that come from using related technologies like electronic prescribing, reporting quality to a central location and serving a Medicare-heavy patient base.

It turns out that the president’s embrace of electronic health records–and Tullman’s–are not completely unrelated. Tullman played basketball with Obama in Chicago back before he was on the national political map. The CEO also helped Obama raise money for his Senate and presidential campaigns. (Tullman’s family of four donated the maximum of $9,200 to Barack Obama during the last election–along with $28,500 more to the Democratic Senatorial Campaign Committee.)

Tullman is happy that his niche software has gained national notice. But he plays down the Obama link, saying: “I’ve gone overboard to skip meetings at the White House.” Improving health care is inevitably based on gathering and analyzing clinical data to find the best practices and keep patients safe, he says. “The only way you can get the information is through electronic heath records.”

Hospitals have realized that this push can also be an opportunity for them to lock in their networks of referring physicians. North Shore-Long Island Jewish Health System recently announced a $400 million deal to supply 7,000 nearby doctors with Allscripts health records systems. Once the doctors install the equipment paid for mostly by the hospital, they can keep the government money. Tullman says there are more of these mega-deals in the pipeline. (Allscripts will get $75 million of the total–the rest goes to hardware and other technology.)

Allscripts, which has 250 salespeople, has had to expand quickly to get in front of doctors who are now finally considering a purchase. Tullman struck a deal this year with
Henry Schein
, a distributor of everything from surgical tools to exam table paper, to resell his software with its 625-person salesforce. A similar deal was struck with
Cardinal Health
. Tullman also has instructed his computer programmers to make it easier for doctors to begin using the records without a customized installation. To manage all this, the company hired HR and operating executives from
Cisco
and
SAP
. “This is a little bit like we’re driving a car at 60 miles per hour while trying to change the tires,” Tullman says.

Tullman’s biggest opportunity may come from a deal he started working on before Obama was even through the primary. Last year a majority of Allscripts was purchased for $330 million by the health division of British software company Misys, which sells accounting and scheduling software to 110,00 doctors in the U.S. The official name was changed to Allscripts-Misys, but the health records business is still run out of Chicago by Tullman. About 90,000 of the Misys client physicians don’t have health records, so there’s an intense focus on getting their records systems installed first.

Only a few years ago Allscripts’ stock was trading around $2 a share and General Electric bought its biggest sales partner, Misys competitor IDX. Those difficult days seem far away. “We’re one of the largest beneficiaries of the stimulus as a company,” Tullman says. “We’re moving forward.”